Employment bonuses, lottery winnings and Investments in Colusa City can seem like a windfall, but they can be problematic when it’s time to file taxes. The US tax code is so complex that even a modest sum of money can have long-lasting repercussions; it can lift you into a higher tax bracket, and it can affect your ability to take itemized deductions on both state and federal tax returns. Below, we list a few strategies to keep money in your pocket and out of the hands of the IRS.
Save it for Later
The government wants you to retire comfortably – they allow you to use retirement account contributions to reduce your taxable income. However, a sudden windfall can be a good way to start saving for retirement, especially if you can use it to make a one-time special contribution. Use the extra money to boost your 401(k) or IRA contribution, or put it in a regular IRA and then convert it to a Roth IRA before the end of the tax year.
Where bonuses are concerned, the Internal Revenue Service expects you to give up 28% in federal tax withholdings. From there you have a few choices, such as a deferred compensation plan (if offered at work). If the bonus comes in the form of shares of stock, consider when to cash out those Investments in order to offset any capital gains.
Pay Taxes on Time
It may seem obvious, but to some it isn’t. A good way to use your bonus is to pay withholdings or estimated taxes, avoiding IRS penalties. You can also pay real estate taxes ahead of time if your windfall puts you at or above the AMT (alternative minimum tax) threshold. The IRS allows you to pay a year ahead of time, but no further than that – ask your accountant before taking this approach.
Winning or inheriting money or getting a bonus at work can be exciting, but you should take the time to think about how it will affect your Investments in Colusa. As soon as you receive the money, talk to your tax adviser to start protecting it as much as possible.
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